Reference no: EM131815435

Question: On 1/1/20X1 we also signed a five-year lease on office furniture and equipment for $5,000 per year payable on January 1 annually. The useful lives of these items approximate 10 years. The cost to buy this furniture and equipment would be about $35,000. If we had bought the furniture instead of leasing, we could have borrowed the money from the vendor at 7%.

How to I verify that the lease is not qualified as a capital lease under FASB Codification 840-10-25-1? Minimum lease payments. The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor. If the beginning of the lease term falls within the last 25 percent of the total estimated economic life of the leased property, including earlier years of use, this criterion shall not be used for purposes of classifying the lease.